Greek central bank cuts growth outlook, warns of risks from debt pile

Reuters Staff

3 Min Read

A vendor gives Euro coins back to a customer at the central market in Athens, Greece, July 8, 2015.Christian Hartmann

ATHENS (Reuters) - Greece's central bank on Friday cut its growth forecast for the year and issued a grim warning that lack of clarity from lenders over resolving the country's debt mountain held potential risks that may require further financial aid in future.

Presenting its annual monetary policy report, the Bank of Greece said Greece's creditors needed to specify their commitment to medium-term debt relief measures to ensure the sustainability of debt over the medium to long term.

Greece's public debt levels are presently at 180 percent of GDP. It has received three bailouts since 2010, and the latest runs out in mid-2018.

"Letting this pending matter drag on poses potentially serious risks and might even foreshadow the need for a new financial assistance agreement post-2018, something that neither Greece nor its partners would want," the Bank of Greece said.

A review of Greece's bailout progress was wrapped up this month after more than six months of talks. Its euro zone lenders approved 8.5 billion euros ($9.70 billion) in bailout loans which Greece needs to pay bonds maturing in July and state arrears.

The lenders also offered some further detail on debt relief measures that will be carried out in 2018.

But delays in wrapping up the most recent bailout review meant the country's economy would only expand by 1.6 percent this year, less than a previous forecast of 2.5 percent, the Bank of Greece said.

The Greek government had already cut its own growth projection to 1.8 percent from 2.7 percent previously. The European Commission projects growth of 2.1 percent.

"The weaker growth dynamics can be attributed to the long delay in completing the second review and to the consequent surge in uncertainty, which led to a considerable decline in investment," the central bank said in the report which was submitted to parliament.

The Bank of Greece added that the medium-term growth outlook remained favorable but was conditional "on the continued smooth implementation of reforms".

It also said that following the agreement the conditions have improved for Greece to regain market access.